Question

Chuck, a single taxpayer, earns $82,000 in taxable income and $17,750 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule.)

Required:

1. If Chuck earns an additional $48,250 of taxable income, what is his marginal tax rate on this income?
2. What is his marginal rate if, instead, he had $48,250 of additional deductions?

(For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

An individual or corporate taxpayer's marginal tax rate is not the same as the average tax rate. It represents the percentage of income tax that will be levied for every incremental dollar of taxable income earned.

a.

Total taxable income = $ 82,000 + 48,250 = $130,250

• This places him in the bracket of 24%, which becomes his marginal tax rate

b. Total Taxable income = $ 82,000 - $ 48,250 = $ 33,750

• This places him in the bracket of 12%, which becomes his marginal tax rate.

Notes:

Marginal tax rate	Single
10%	$0–$9,700
12%	$9,701–$39,475
22%	$39,476–$84,200
24%	$84,201–$160,725
32%	$160,726–$204,100
35%	$204,101–$510,300
37%	$510,301 and more